Ecole Polytechnique: Researchers from CREST rewarded by the Financial Times

How can we design insurance mechanisms for crop losses due to climatic hazards that can benefit small farmers? Such is the question studied by economists from the Centre for Research in Economics and Statistics (CREST*) Alexis Louaas and Pierre Picard together with economists from Imperial College in London. Their scientific publication has just received an Academic Research Award from the Financial Times, which rewards academic work that has an impact on concrete social issues.

“One of the factors that make access to agricultural insurance difficult, particularly in Africa, is establishing, measuring and verifying the extent of losses in the field, which is costly,” explains Pierre Picard, professor of economics and member of the Haut Collège at École Polytechnique. This is why so-called “parametric” insurance policies tend to be developed, in which compensation is not paid according to measured losses, but according to parameters, such as weather data linked – albeit imperfectly – to agricultural yields. This data, collected by satellite, is readily available, which reduces insurance costs.

The researchers theoretically studied the possibilities and limits of such a system in the context of small farms in Tanzania, coupling it with the issue of better access to technology. Indeed, the poorest farmers sometimes cannot even buy fertiliser. The insurance in question is therefore combined with small loans to farmers so that they can acquire better technical equipment to develop their activity.

“Our paper is mostly a theoretical one and data collected in Tanzania were also used for simulations. This work is done in collaboration with local actors, in the framework of the ARISE project,” explains Pierre Picard. The general objective is to improve development aid through incentive mechanisms and risk sharing.